Econ Chapter 6: Taxes and Subsidies

Tax on Sellers

Increases the price that buyers pay and decreases the price that sellers receive

Tax on Sellers Effect on the Supply Curve

Supply curve shifts to the left to reflect the higher marginal costs, leads to decline in q sold

Price ceilings

a maximum price that can be legally charged for a good or service

Price floors

a minimum price allowed by law

Economic burden of tax

burden created by the change in after-tax prices faced by buyers and sellers

Statutory Burden of tax

burden of being assigned by the gov the responsibility of sending a tax payment

Buyers bear smaller burden when

demand is elastic

Tax incidence

division of the economic burden of a tax between buyers and sellers

Tax on Buyer vs Tax on Seller

effect same on both sides regardless of who the tax is imposed on

When there is less distortion

gov revenue higher

When there is lots of distortion

gov revenue lower

Price controls

legal restriction on maximum price that can be charged in a market or legal restriction that a good must be sold higher than a particular price

Quota

limit on max quantity that can be sold in a marker

Quantity regulation

min or max quantity that can be sold

Subsidies

payment made by gov to those who make a specific choice, encourage certain behavior

Binding price ceiling

price ceiling that prevents market from reaching the market equilibrium price, set below equilibrium price

Cause shortages

price ceilings

Binding price floor

price floor that prevents the market from reaching the equilibrium, lowest price sellers can charge set above the equilibrium price

Causes surpluses

price floors

Mandate minimum

requirement to buy or sell a minimum amount of a good

Tax on Buyers effect on the demand curve

shifts demand curve to the left to reflect the lower willingness to pay

Sellers bear smaller burden when

supply is elastic

Who pays more of the tac

whoever has more elastic curves